How China Bought The Italian Tire Company Pirelli And What Italy Is Doing About It

Milan-based tiremaker Pirelli is at a crossroads after Chinese state-owned chemical and rubber company ChemChina took a 37% majority stake in the company for a staggering $7.7 billion back in 2015. The deal gave ChemChina, which has since merged with another Chinese state-owned company, Sinochem, unfettered access to Pirelli's tire-making strategies and technologies. For Pirelli, the cash infusion is crucial for exploring new tire technologies and expanding its presence in the Chinese market.

Moreover, the deal came with provisions, such as allowing Pirelli's Italian management to remain in place after the acquisition and granting veto powers to Italian investors on certain management-related decisions. As to how ChemChina bought into Pirelli, J.P. Morgan provided a €6.8 billion ($7.3 billion) bridge loan to finance the takeover bid. ChemChina has been on the lookout for companies to acquire before its 2015 takeover of Pirelli, and things were relatively quiet and calm a few years after the buyout. In 2018, Pirelli took a 49% stake in a joint venture with Jining Shenzhou Tyre Co. to open a new tire manufacturing plant in China.

However, the honeymoon between ChemChina (now Sinochem) and Pirelli took a sour note when the Chinese company told the Italian government that it was planning to update and renew its existing shareholder agreement with the Italian tiremaker in 2023. Pirelli's 150+ years of Italian heritage were at stake, so the Italian government took drastic steps to safeguard the tiremaker's numerous patents, research, and technologies.

By June 2023, the administration of Italian Prime Minister Georgia Meloni was examining the Pirelli-Sinochem agreement using the Golden Power Procedure Rules, granting the Prime Minister's office "special powers" of preventive control to protect businesses that are strategically important to the country. The Italian government's intervention under the Golden Power Law resulted in two additional provisions regarding Sinochem's majority stake in Pirelli.

First, the government has essentially blocked the Chinese from appointing Pirelli's new chairman. Second, the Italian government has the right to scrutinize and pre-approve any changes to Pirelli's corporate governance. Not long after, Pirelli's board of directors announced that Sinochem does not control the company, a bold and decisive step to counteract the possible regulatory constraints when Pirelli expands its operations in the United States. Furthermore, Pirelli viewed Sinochem's stake in the company as a "hurdle" for the tiremaker's North American ambitions. The Golden Power Law should help assure U.S. authorities that Pirelli remains independent despite its Chinese ownership.

The Italian government had to employ the Golden Power Law on Pirelli to protect its Cyber Tiye technology. The Pirelli Cyber Tyre is unlike any tire on the road. It has sensors to collect data, including temperature, air pressure, vehicle speed, and even the car's location. With Sinochem's majority stake in Pirelli, the Cyber Tyre could potentially be illegal to sell in the United States, with regulators like the Bureau of Industry and Security of the U.S. Department of Commerce expressing concerns about the possible data collection.

The McLaren Artura supercar became the first in 2022 to come standard with the Pirelli Cyber Tyre, with the sensors able to transmit data to the vehicle's control electronics. The next-generation Cyber Tyre, Pirelli claims, will communicate with the anti-lock brakes (ABS) and traction/stability control while detecting tire wear. For now, high-end sports cars and supercars are the production testbeds for Cyber Tyre, but the technology could soon trickle down to everyday cars, provided it adheres to U.S. regulations.